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Political ideology, quality at entry and the success of economic reform programs

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  • Smets, Lodewijk
  • Knack, Stephen
  • Molenaers, Nadia

Abstract

This study investigates how government ideology matters for the success of World Bank economic policy loans, which typically support market-liberalizing reforms. A simple model predicts that World Bank staff will invest more effort in designing an economic policy loan when faced with a left-wing government. Empirically, estimates from a Heckman selection model show that the quality at entry of an economic policy loan is significantly higher for governments with a left-wing party orientation. This result is robust to changes in the sample, alternative measures of ideology, different estimation techniques and the inclusion of additional control variables. Next, robust findings from estimating a recursive triangular system of equations indicate that leftist governments comply more fully with loan agreements. Results also suggest that World Bank resources are more productive -- in terms of reform success -- in the design of policy operations than in their supervision. Anecdotal evidence from several country cases is consistent with the finding that left-wing governments receive higher quality loans.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 6130.

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Date of creation: 01 Jul 2012
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Handle: RePEc:wbk:wbrwps:6130

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Keywords: Economic Adjustment and Lending; Banks&Banking Reform; Public Sector Corruption&Anticorruption Measures; Economic Theory&Research; Debt Markets;

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Cited by:
  1. Christopher Kilby, 2011. "The Political Economy of Project Preparation: An Empirical Analysis of World Bank Projects," Villanova School of Business Department of Economics and Statistics Working Paper Series, Villanova School of Business Department of Economics and Statistics 14, Villanova School of Business Department of Economics and Statistics.
  2. Smets, Lodewijk & Knack, Stephen, 2014. "World Bank lending and the quality of economic policy," Policy Research Working Paper Series 6924, The World Bank.
  3. Axel Dreher & Anna Minasyan & Peter Nunnenkamp, 2013. "Government Ideology in Donor and Recipient Countries: Does Political Proximity Matter for the Effectiveness of Aid?," Kiel Working Papers 1870, Kiel Institute for the World Economy.

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